The Letter – Monday, May 01, 2006

The Letter – Monday, May 01, 2006

The Letter Limited - www.theletter.biz

The Haps

Parliament resumes. David Parker is recycled. Oil prices start to bite.

Parker Reappointed

Helen Clark is relieved to be able to reappoint Parker. It is a sign of the paucity of talent in Labour's backbench that he was literally irreplaceable. Overloaded Ministers are happy to hand the Energy and Transport portfolios back to him. While we agree that Parker is more able than any possible replacement, we do point out that in six months he has produced no policy solutions. We hope he has used his month's holiday to think through some coherent responses to the challenge of how the country is to meet its Kyoto obligations and Auckland's transport mess. In our three-year election cycle, Ministers who spend a year working out policy find they have no time left to implement change.

Woes Over?

At the press conference last week announcing her intention to reappoint Parker, the PM made an odd statement asking anyone with any dirt to come forward. A bit like the call in the wedding service to speak out or forever hold your peace. We know the reason. Mr Hyslop, Parker's aggrieved business partner, is ringing MPs to say he has more dirt on him. Ian Wishart continues to stand by the Investigate article and no doubt in the next issue we shall see another instalment. We understand that Parker has said he knows of nothing except a possible claim that he had a conflict of interest as a lawyer and a business partner. The PM cannot refuse to appoint him on the basis of a claim that someone has dirt but they will not say what. Hyslop has made a complaint to the Otago District Law Society and to cover the possibility of an adverse finding, Parker will not be reappointed Attorney-General.

Oil prices hurting

The effect of the drop in the exchange rate has wiped out the return from NZ's high interest rates. The market no longer expects them to drop this year. Although the Reserve Bank held the cash rate, the change in expectation resulted in mortgage interest rates rising. Only competition between the banks is keeping the rates from rising further. If savers, many of them superannuitants who are feeling the effect of inflation, start to move from the banks to look for a higher return, even without a change in the cash rate, mortgage interest rates could rise further. A very significant number of fixed rate mortgages, in some banks 40%, are coming up for renewal in the next six months. These households face interest rate increases to 7.4%.

The over taxed

Spare a thought for NZ's forgotten - the adult household with no children. These households have had no tax relief and do not qualify for family support or any government program. Their costs of getting to work have just risen and their mortgages are about to rise.

Redistributing wealth

Whilst the effect of increased family support will reduce the impact of higher oil prices on overall economic activity, increased inflation impacts people differently. Relative wealth is altered. Wage and salary earners find that their absolute and relative wealth is reduced. A year of this and trade union activity will become militant. Inflation also distorts investment decisions. So far investors still believe the Reserve Bank will bring inflation under control but fear of inflation could be part of the reason houses are our favorite investment.

Iran

The present rise in oil prices is caused by the crisis in Iran, one of the world's largest producers. It is a situation full of irony and danger. The US invaded Iraq, looking for weapons of mass destruction that were not there. However, for Iran, which is building a bomb, the US is relying on diplomacy. The reasons are many. The US army is bogged down in Iraq. As Jimmy Carter found when the Marines failed to rescue the US hostages, Iran is a hard country to invade. If Iran's oil stops flowing, there is no extra capacity. Oil prices will really increase and world economic growth will be halted. NZ might find it difficult even to get oil supply. In 1974 NZ came within days of running out completely and were saved by help from Australia. Iran has again this year threatened to destroy Israel. The Israelis possibly have the capacity to bomb Iran's nuclear facilities. (With US help they certainly could.) Clark, who has a view on most international issues, has been very silent on Iran. The issue is heading to the UN Security Council this month and our government is going to have to decide what stance to take. While the general consensus is that the US use of force in Iraq did not "work", perhaps diplomacy does not work either. The world is not benign.

Fellow Freedom Fighters

At last week's National Party's regional conference Don Brash told delegates that he brought warm greetings from the Communist Party of China and then told the conference that he believed that the National Party was closer to the Communist Party of China than Labour. This astonishing claim was greeted with polite applause. It shows the problem of only judging on economic growth unless, of course, National is planning when in government to arrest without trial, suppress free speech and do away with elections. In contrast John Key has made an interesting speech on lessons from Singapore.National has not put it up so see _http://theletter.biz/key.htm_

What an ACT

Rodney reports he is now fitter than he was when he worked on oilrigs in the North Sea. He has just started learning the rumba. A text message from Heather Roy from boot camp says she has discovered she is a good shot. A professional dancer and a trained killer. If they can't waltz around the government they can now shoot them.

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